Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Ireland’s economic recovery has been underpinned by a significant improvement in competitiveness. The latest figures from the Central Bank show that Ireland’s harmonised competitiveness indicator, a widely used measure of competitiveness in Europe, has improved by approximately 19% between its peak in 2008 and February 2018. The restoration of Irish competitiveness since 2008 has been hard won through improvements in productivity and wage and price moderation. It is important that Ireland’s competitiveness position is preserved and continues to facilitate growth.

Regarding domestic risks to competitiveness, overheating and housing supply pressures are of particular concern. The housing sector can adversely impact on competitiveness through, for example, restricting the ability of people to move, while the change in asset prices there has a knock-on effect on other pressures in our economy. This is why the Government introduced a number of initiatives in budget 2018, in addition to the measures implemented in Rebuilding Ireland, to tackle the underlying problem of a supply shortage.

While the economy is in good shape at the moment, capacity constraints are emerging which could lead to overheating. The most recent unemployment data show that we are fast approaching full employment, and in this context we need to take care with the management of our economy. It is therefore crucial that we continue to prudently manage the public finances to avoid pro-cyclical policies. The fiscal rules are currently unhelpful in this regard. A full and literal application of these rules would involve the adoption of policies that would mean more borrowing, which is not appropriate for us now.

As set out in the 2018 Summer Economic Statement, budgetary policy will be framed on the basis of what is right for the economy to ensure continued, steady improvements in Irish employment and living standards.

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